Educational Articles

Dow-30 Earnings: Johnson & Johnson - First Quarter 2014

Erik Antonson
| April 15, 2014

Healthcare conglomerate Johnson & Johnson (JNJ – Free Johnson & Johnson Stock Report) recently announced first-quarter results. Sales rose 4%, to $18.1 billion, which was a shade above our target and about $100 million higher than the consensus estimate. Management said that internal growth of greater than 5% was offset by unfavorable currency translation of less than 2%; domestic revenues rose 2% and international sales increased 5%. Adjusted share earnings were $1.54, a 7% hike from the year-earlier figure. (The results included a net $0.10-a-share gain, as a one-time tax benefit was partially mitigated by integration and transaction costs related to the acquisition of Synthes and an in-process R&D charge.) The bottom-line figure was $0.06 a share better than the consensus was looking for.

Worldwide Consumer sales of $3.6 billion represented a decrease of 3% compared with a year ago, largely reflecting the divestiture of a sanitary protection business that was completed in late 2013. Management said that positive contributors were sales of skin care products, such as AVEENO and DABAO; sales of oral care products, like LISTERINE; and sales of OTC products, including ZYRTEC.

Global Pharmaceutical revenues rose 11%, year over year, to $7.5 billion. Domestic growth was in the high single digits, and international growth was 14% after adjusting for unfavorable foreign exchange headwinds. Strong demand for the usual suspects, STELARA, PREZISTA, and VELCADE among others, boosted the top-line total here, and sales of new products also chipped in.

Finally, worldwide Medical Devices & Diagnostics sales of $7.1 billion were flat compared with the year-earlier figure, as operational growth of 2% was entirely offset by negative currency translation. Management noted that the orthopedics business, the specialty surgery operation, and the cardiovascular care group all contributed positively to results. JNJ also said that The Carlyle Group's offer to acquire the Ortho-Clinical Diagnostics business for about $4 billion was accepted, and the transaction will likely close toward the middle of the year.

Overall, the strong Pharmaceutical results helped J&J get off to a good start this year, as it allowed the conglomerate to make up for relative weakness in Consumer and MD&D. The company also raised its share-earnings guidance for 2014, from $5.75-5.85 to $5.80-$5.90. Investors seemed pleased, as JNJ stock inched up following the announcement during a weak trading session. JNJ shares continue to trade just below their 52-week high.

We are leaving our near-term share-net estimate unchanged for now, as we were already looking for the company to earn $5.85 this year. Our investment advice is also the same, as we think JNJ stock is fairly priced at the current level. That said, the company's longer-term growth prospects are good, and we would recommend this stock to just about any buy-and-hold investor looking for stability and a worthwhile dividend yield.